Punjab Economic Report 2007

Punjab Economic Report 2007
i
Table of Contents
Study Team ..............................................................................................................................................i
Acronyms and Abbreviations ................................................................................................................ ii
Statement .......................................................................................................................................... vii
Preface ............................................................................................................................................ix
Executive Summary ...............................................................................................................................xi
1 Introduction .........................................................................................................................1
1.1 Vision 2020...................................................................................................................1
1.2 Structure of the Report..................................................................................................1
2 Assessing the Economy’s Performance: Growth, Poverty and Employment.....................3
2.1 Punjab’s GPP................................................................................................................3
2.1.1 Share in National Economy .............................................................................3
2.1.2 Structure of GPP ..............................................................................................4
2.1.3 Sectoral Growth Trends ...................................................................................6
2.2 Employment..................................................................................................................7
2.2.1 Employment by Sector.....................................................................................7
2.3 Poverty .........................................................................................................................9
2.3.1 Non-income Determinants of Poverty – Progress Towards the MDGs.........10
2.3.2 Relationship between Money-Metric Poverty Status and Access to
Public Services...............................................................................................11
2.4 Conclusion ..................................................................................................................11
3. Agriculture .......................................................................................................................13
3.1 Trends, Structure and Performance of Agriculture.....................................................13
3.1.1 Composition of the Agriculture Sector in Punjab..........................................14
3.2 A Theoretical Framework for Analyzing the Sources of Growth in Agriculture..............15
3.2.1 Sources of Growth – A Framework ..............................................................15
3.2.2 Yield Gaps in Punjab ....................................................................................17
3.3 Bridging the Agricultural Research Gap – Status and Prospects................................18
3.3.1 Lack of Co-ordination between Federal and Provincial Research Systems ..18
3.3.2 Low Funding Levels ......................................................................................18
3.3.3 Reasons for Ineffectiveness of Research Institutions ....................................20
3.3.4 Proposed Strategy ..........................................................................................20
3.4 Bridging the Extension Gap – Status and Prospects ..................................................21
3.4.1 Institutional Issues .........................................................................................21
3.4.2 Critical Weakness ..........................................................................................22
3.5 The Role of Input Use and Delivery system in Agricultural Growth .........................23
3.6 Agricultural Diversification – The way forward.........................................................25
3.6.1 Developments in Livestock and Dairy Farming ............................................25
3.6.2 Characteristics of the Livestock Sector .........................................................25
3.6.3 Constraints to Livestock Development..........................................................26
3.6.5 New Institutions and Agricultural Diversification ........................................28
3.6.6 Off-season vegetables (Tunnel) Farming - a move toward Non-traditional
Products. ......................................................................................................28
3.7 Conclusion ..................................................................................................................29
4 Rural Development ................................................................................................................31
4.1 Sources of Livelihood in Rural Punjab.......................................................................31
4.2 Key Policy Options.....................................................................................................32
4.3 Provision of Public Goods ..........................................................................................32

Acronyms And Abbreviations
ii
4.3.1 Rural Electrification.......................................................................................32
4.3.2 Public Utilities ...............................................................................................32
4.3.3 Farm-to-Market Roads...................................................................................33
4.4 Determinants and Drivers of Rural Poverty Reduction ..............................................33
4.5 Pakistan’s Rural Development Strategy .....................................................................34
4.6 Developing Less Developed Areas.............................................................................35
4.7 Conclusion ..................................................................................................................36
5 Industry .......................................................................................................................37
5.1 The Industry Sector in Punjab.....................................................................................37
5.2 Estimates of the Number of Manufacturing Units in Punjab......................................37
5.3 Employment and Manufacturing Output ....................................................................39
5.4 Key Issues in Industrial Development ........................................................................40
5.4.1 Role of Small and Medium Enterprises (SMEs)............................................40
5.4.2 Industrial Development and Environmental Degradation .............................41
5.4.3 Rising Cost of Energy....................................................................................42
5.4.4 General Issues ................................................................................................44
5.5 Programs and Initiatives for the Industrial Sector ......................................................45
5.6 Conclusion ..................................................................................................................45
6 Urban Development...............................................................................................................47
6.1 Urban Livability and Location Characteristics ...........................................................48
6.1.1 Housing..........................................................................................................48
6.1.2 Water Supply and Sanitation and Solid Waste Management ........................51
6.1.3 Transport........................................................................................................53
6.1.4 Environment ..................................................................................................55
6.2 Punjab Government’s Urban Strategy ........................................................................60
6.3 Conclusion ..................................................................................................................61
7 The Services Sector ................................................................................................................63
7.1 Linkages of the Services Sector..................................................................................63
7.2 Rural Investment Climate Survey (RICS) 2005 .........................................................64
7.2.1 Wholesale and Retail Trade...........................................................................64
7.2.2 Finance and Insurance ...................................................................................65
7.2.3 Ownership of Dwellings ................................................................................66
7.2.4 Community, Social, and Personal Services ...................................................67
7.3 Transport and Communications..................................................................................68
7.3.1 Transport Sector.............................................................................................68
7.3.2 Communications Sector.................................................................................70
7.4 Steps to Expand the Growing Services Sector............................................................71
7.5 Recommendations.......................................................................................................74
7.6 Conclusion ..................................................................................................................75
8 Education .......................................................................................................................77
8.1 Key Indicators.............................................................................................................77
8.1.1 School Attendance .........................................................................................77
8.1.2 Functionality ..................................................................................................77
8.1.3 Literacy ..........................................................................................................77
8.1.4 Enrolment Rates.............................................................................................78
8.1.5 Capacity Utilization .......................................................................................79
8.1.6 Dropout Rates ................................................................................................81
8.1.7 Expenditure on Education..............................................................................81
8.2 Major Initiatives in the Education Sector ...................................................................81
8.2.1 Punjab Education Sector Reform Program....................................................82
8.2.2 Poverty Focused Investment Strategy (PFIS) ................................................84
8.2.3 Punjab Devolved Social Sector Program (PDSSP) .......................................84
8.2.4 Targets for Millennium Development Goals .................................................84
8.3 Conclusion ..................................................................................................................87

9 Health and Population...........................................................................................................89
9.1 Key Indicators.............................................................................................................89
9.1.1 Population and Population Density................................................................89
9.1.2 Basic Demographics ......................................................................................89
9.1.3 Basic Health...................................................................................................89
9.1.4 Child Health...................................................................................................90
9.1.5 Reproductive Healthcare................................................................................91
9.1.6 Communicable Diseases ................................................................................92
9.2 Health Infrastructure ...................................................................................................93
9.3 Issues and Constraints.................................................................................................94
9.3.1 Management Issues........................................................................................94
9.3.2 Personnel Issues.............................................................................................95
9.3.3 Lack of Equipment and Medicines ................................................................95
9.3.4 Inadequate Funding........................................................................................95
9.4 Health Sector Reform Program (HSRP) .....................................................................95
9.5 Expenditure on Health ................................................................................................97
9.6 Conclusion ................................................................................................................100
10 Mainstreaming Gender in Development............................................................................101
10.1 Key Indicators...........................................................................................................101
10.2 Government Initiatives .............................................................................................103
10.2.1 Gender Reform Action Plan ........................................................................103
10.3 Conclusion ................................................................................................................103
11. Land .....................................................................................................................105
11.1 Land Use ...................................................................................................................105
11.2 Changes in the Pattern of Land Ownership ..............................................................105
11.3 Changing Trends in Operated Area by Tenure and Farm Size .................................107
11.4 Land Degradation in Punjab .....................................................................................108
11.4.1 Salinity and Sodicity....................................................................................109
11.4.2 Water Logging .............................................................................................109
11.4.3 Deforestation and Desertification ................................................................110
11.4.4 Soil Erosion .................................................................................................110
11.4.5 Depletion of Soil Nutrients ..........................................................................111
11.4.6 Proposed Strategies......................................................................................111
11.5 Land Management Issues..........................................................................................112
11.5.1 Status of Land Titling ..................................................................................112
11.5.2 A Revenue Record and not a Title...............................................................113
11.5.3 Registration of Land Documents .................................................................113
11.5.4 Land Acquisition..........................................................................................113
11.5.5 Registration of Land Sales...........................................................................114
11.5.6 Land Use Regulation ...................................................................................114
11.6 Contract Enforcement ...............................................................................................114
11.7 Key Issues, Recent Progress and Some Policy Suggestions.....................................115
11.8 Conclusion ................................................................................................................117
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12 Water .....................................................................................................................119
iv
12.1 Future Water Requirements: National Scenario .......................................................119
12.2 Geography and Climate of Punjab............................................................................121
12.3 Surface Water Resources ..........................................................................................122
12.3.1 River Flows..................................................................................................122
12.3.2 Sediment Transport and Surface Water Quality ..........................................123
12.3.3 Drainage.......................................................................................................124
12.3.4 Floods ..........................................................................................................125
12.4 Groundwater .............................................................................................................125
12.5 Irrigation Infrastructure.............................................................................................128
12.5.1 Canal Irrigation System Issues ....................................................................130
12.6 Water Sector MTDF .................................................................................................132
12.7 Punjab Irrigation Sector Reforms ............................................................................133
12.8 Agricultural Water Use.............................................................................................136
12.9 Water Requirements for Crops in Punjab .................................................................138
12.10 Issues at the Agriculture-Water Nexus .....................................................................140
12.11 The Way Forward .....................................................................................................140
12.12 WSS Services............................................................................................................142
12.13 Sanitation Services Coverage in Punjab ...................................................................145
12.13.1 Domestic Wastewater Loads .......................................................................145
12.14 Issues in WSS ...........................................................................................................147
12.14.1 Water Supply ............................................................................................147
12.14.2 Sanitation..................................................................................................148
12.15 Devolution of WSS Services ....................................................................................148
12.16 Recommendations.....................................................................................................149
12.16.1 WSS..........................................................................................................149
12.16.2 Devolution of WSS Service Delivery.......................................................150
12.17 Industrial Water Use .................................................................................................151
12.17.1 Recommendations ....................................................................................152
12.18 Conclusion ................................................................................................................153
13 Public Sector Resource Management.................................................................................155
13.1 Recent Developments ...............................................................................................155
13.1.1 National Finance Commission (NFC) Award 2006.....................................155
13.1.2 Implementation of Subprogram II of the Punjab Resource
Management Program (PRMP) ................................................................156
13.1.3 Institution of Medium Term Planning Frameworks ....................................157
13.2 Expenditure Trends...................................................................................................158
13.2.1 Current Expenditure.....................................................................................158
13.2.2 Development Expenditure ...........................................................................159
13.2.3 Debt Liabilities of the Provincial Government............................................160
13.3 Trends in Revenue Mobilization...............................................................................161
13.4 Initiatives for Improved Resource Management.......................................................163
13.4.1 Focus on Social Sectors ...............................................................................163
13.4.2 Public-Private Partnerships..........................................................................163
13.4.3 Institutional Reform.....................................................................................163
13.4.4 The Medium Term Budgetary Framework (MTBF) 2007/10 .....................164
13.4.5 Meeting the MTBF 2007/10 Targets ...........................................................166
13.5 Conclusion ................................................................................................................168

v
List of Appendix
Appendix 1: Social Safety Nets.....................................................................................................171
Appendix 2: The Agriculture Research Infrastructure in Punjab ..................................................174
Appendix 3: Livestock Development Initiatives ...........................................................................180
Appendix 4: Technical Education and Vocational Training Authority (TEVTA) ........................182
Appendix 5: Health Sector Reform Achievements........................................................................184
Appendix 6: Gender Mainstreaming Project (2004/07).................................................................186
Appendix 7: The Land Records System........................................................................................190
Appendix 8: Punjab Irrigation Sector Reforms (Water)................................................................192

vi
List of Tables
Table 2.1: GDP Growth Rate in Punjab (% per annum)................................................................6
Table 2.2: Percentage Distribution of Rural and Urban Employed Persons
by Major Sector in Punjab, FY 2000 and FY 2006 ......................................................8
Table 2.3: Percentage Distribution of Employed Persons Engaged in the Informal Sector
by Employment Status and Gender in Rural Areas, 2005/06 .......................................9
Table 2.4: Non-income Poverty Indicators for Punjab, FY 1999 to FY 2005 .............................10
Table 3.1: Gross Provincial Agriculture Product by Sub-Sectors in Agriculture ...............................14
Table 3.2: Sectoral Share in Gross Agriculture Product in Punjab .....................................................14
Table 3.3: Sectoral Growth Rates of Punjab Agriculture ....................................................................14
Table 3.4: Average Yields for Selected Agriculture Commodities and the Associated Yield Gaps .17
Table 3.5: Distribution of public agricultural research expenditures and total researchers, 2003......19
Table 3.6: Public and Private Research Expenditures, 2003 ...............................................................19
Table 3.7: Distribution of Improved seeds by Crops...........................................................................24
Table 3.8: Agriculture Loan Disbursement per Cropped Hectare.......................................................25
Table 3.9: Tunnel Farming: Yields gap between tunnel farmers and traditional vegetable growers.28
Table 3.10: Tunnel Farming: Fantastic Returns (median net returns Rs/acre) .....................................28
Table 5.1: Share of Punjab in Production of Selected Manufactured Items in Pakistan ....................39
Table 5.2: District-Level Detail of Industrial and Municipal Discharge in Punjab ............................42
Table 6.1: Size and Growth of Population in Punjab (Million)...........................................................47
Table 6.2: Population Share of Large and Small Cities in Urban Punjab (percent) ...........................48
Table 6.3: Housing Units by Number of Rooms and Fuels Used in Urban Areas (percent) .............49
Table 6.4: Household Features by Area ( percent) ..............................................................................49
Table 6.5: Water Supply and Sewerage Connections in Punjab’s Major Cities 2005/06 ..................51
Table 6.6: Manpower Status of Waste Collection/Transport and Cleaning.................................52
Table 7.1: Linkages of Services and Commodity-Producing Sectors in Pakistan 2005.....................63
Table 7.2: Tenure Pattern and Construction Types in Punjab.............................................................66
Table 7.3: Performance of Transport and Communication Sector in Punjab .....................................69
Table 7.4: Business Services as a “Breakthrough” Sector...................................................................72
Table 7.5: Inter-linkages among Selected Services Sub sectors..........................................................73
Table 8.1: Population that has ever Attended School, Pakistan and Punjab.......................................77
Table 8.2: Literacy Rates in Pakistan and Punjab................................................................................78
Table 8.3: Gross Primary, Middle and Matric Level Enrolment Rate in Punjab and Pakistan..........79
Table 8.4: Capacity Utilization at Primary Level in Punjab................................................................80
Table 8.5: Key Education Indicators/Medium-Term Targets, Timeframe for Achieving MDGs .....84
Table 8.6: Capacity Utilization in Technical Institutions in Punjab....................................................85
Table 8.7: Capacity Utilization at Higher Education in Punjab ..........................................................86
Table 8.8: Capacity Utilization at Professional Education Level in Punjab .......................................86
Table 9.1: Percentage of Immunized Children (12 to 23 Months) in Punjab .....................................90
Table 9.2: MDGs Targets: Indicators of Health in Punjab..................................................................97
Table 9.3: Health Sector Resource Allocation (Rs. Million)...............................................................98
Table 10.1: Indicators of Gender Development Index.........................................................................101
Table 10.2: Labor Force Participation, Unemployment and Underemployment Rate in Punjab.......102
Table 11.1: Land Use in Punjab ...........................................................................................................106
Table 11.2: Gini Coefficient for Ownership Holding..........................................................................107
Table 11.3 Percentage Distribution of Land Ownership in Punjab....................................................107
Table 11.4: Gini Coefficient for Operated Area by Mode of Tenancy ..............................................108
Table 11.5: Percentage Distribution of Farm Operated Area for Punjab............................................108
Table 11.6: Soils affected by various types of salinity and sodicity....................................................109
Table 11.7: Extent of waterlogged area................................................................................................110

vii
Table 11.8: Area afforested and regenerated (million hectares)
in Punjab during 1997/98 to 2001/02........................................................................110
Table 11.9: Area affected by water erosion .................................................................................111
Table 11.10: Area affected by wind erosion ..................................................................................111
Table 11.11: Nutrient balance Sheet in Pakistan (1985/86 and 1995/96)......................................111
Table 12.1: Irrigation Water Requirements for High-Demand Scenario .....................................119
Table 12.2: Irrigation Water Requirements for Low-Demand Scenario......................................120
Table 12.3: Average Annual Rainfall (mm) at Selected Locations in Punjab, 1996 to 2005 ......122
Table 12.4: Total River Flows (MAF) of Western and Eastern Rivers .......................................122
Table 12.5: Western River Flows (MAF) at Rim Stations...........................................................122
Table 12.6: Apportionment of Indus Waters between Provinces (MAF) ....................................123
Table 12.7: Loss of Storage Capacity in Main Reservoirs due to Silting ....................................123
Table 12.8: Distribution of Groundwater Quality Zones .............................................................126
Table 12.9: Groundwater Quality Status in Different Groundwater Monitoring
Units of Punjab, 2005 (Area in ha) ...........................................................................127
Table 12.10: Salient Features of Link Canals ................................................................................128
Table 12.11: Details of Punjab’s Canals ........................................................................................129
Table 12.12: Features of Punjab’s Irrigation System.....................................................................129
Table 12.13: Summary of revised (2006) Costs of Rehabilitation of Assets .................................130
Table 12.14: Irrigation and Drainage Projects ...............................................................................132
Table 12.15: Projects Funded by Federal PSDP ............................................................................132
Table 12.16: Allocations of Foreign-Funded Projects ...................................................................133
Table 12.17: Punjab’s Urban Population and Water Demands......................................................142
Table 12.18: Supply of Drinking Water in Punjab by Source .......................................................143
Table 12.19: Main Sources of Drinking Water in Punjab..............................................................143
Table 12.20: Sources of Punjab’s Water Supply ...........................................................................143
Table 12.21: Access to Water Supply............................................................................................143
Table 12.22: MTDF allocations 2007/10 for Water Supply and Sanitation (including WASAs) .145
Table 12.23: Punjab Urban Wastewater Produced and Future Projections ...................................145
Table 12.24: Distribution of Households by Type of Toilet (percent)...........................................146
Table 12.25: Punjab Sanitation Coverage, Wastewater, and Solid Waste Disposal (percent).......147
Table 13.1: Shares of Different Current Expenditure Categories in Total Current Expenditure .159
Table 13.2: Development Expenditure Allocations (Rs. Million) ...............................................160
Table 13.3: Debt Servicing Costs (Rs. Million)...........................................................................160
Table 13.4: Growth of General Provident Fund Liability Fund...................................................161
Table 13.5: Provincial Revenue Receipts (Rs Million) ...............................................................162
Table 13.6: Financing of Expenditure of Punjab MTBF 2007/10 ...............................................166

viii
List of Figures
Figure 2.1: Sector Wise Share of Punjab’s GPP in National GDP..................................................4
Figure 2.2: Share of Key Sub-Sectors of Punjab’s GPP in National GDP......................................4
Figure 2.3: Sectoral Shares in Punjab’s GPP, FY 2007 ..................................................................5
Figure 2.4: Composition of Punjab’s Services Sector, FY 2007.....................................................5
Figure 2.5: Growth Rates of Key Sectors and the GPP in Punjab...................................................7
Figure 2.6: Share in Employment and Value-Added for Key Sectors, FY 2006 ............................8
Figure 3.1: Composition of the Agriculture Sector in Punjab (FY 2000 to FY 2007).........................15
Figure 3.2: Share of Value Added of Four Crops in Total Value Added of Major Crops in Punjab ..15
Figure 3.3: Productivity Gaps in Agriculture ........................................................................................16
Figure 5.1: Composition of Industrial Sector of Punjab, FY 2007................................................37
Figure 5.2: Share of Value-Added of Major Industrial Groups in Punjab, FY 2001 ....................39
Figure 5.3: Energy Consumption by Industry in Pakistan ............................................................43
Figure 8.1: Pass Rates for Matric Examination in Punjab by Grade (Science Group)..................80
Figure 8.2: Pass Rates for Matric Examination in Punjab by Grade (General Group) .................80
Figure 8.3: Total Expenditures on Education in Punjab (Rs Million)...........................................81
Figure 8.4: Enrolment Rates in Punjab*........................................................................................83
Figure 9.1: Infant Mortality Rate in Punjab (Deaths per 1,000 Live Births).................................90
Figure 9.2: Type of Assistance in Child Delivery-Punjab (2003/04)............................................92
Figure 12.1: Storage Capacity of Various Semi-Arid Basins........................................................120
Figure 12.2: Evolution of Tube wells in Punjab............................................................................125
Figure 12.3: Punjab Canal Withdrawals, Apr to Mar (MAF) .......................................................136
Figure 12.4: Water Table Decline in SGW Zone of Chaj Doab, 1998 to 2001.............................137
Figure 12.5: Shares of Major Crops in Cropped Area in Punjab 2005- 06 ...................................139
Figure 12.6: Shares of Major Crops in Terms of Water Requirements.........................................139
Figure 12.7: Sanitation Facilities in Punjab ..................................................................................146
Figure 13.1: Expenditure Trends...................................................................................................158

ix
List of Boxes
Box 3.1: Impact Evaluation of Agricultural Extension through the Mass Media (2001) ................23
Box 3.2: Idara-e-Kissan (Halla Dairy): A Success Story..................................................................27
Box 4.1: Helping People Help Themselves: SLBAP ................................................................35
Box 5.1: The Handloom Industry: an Export-Potential Industry
Being Phased Out........................................................................................................40
Box 5.2: Punjab Small Industries Corporation (PSIC)..............................................................41
Box 5.3: Investment Climate Survey of Manufacturing and Exporting Industries ...................44
Box 5.4: Sundar Industrial Estate ..............................................................................................45
Box 6.1: Anjuman-e-Samaji Behbood, Faisalabad....................................................................53
Box 6.2: The Level of Pollution in Punjab’s Provincial Capital ...............................................56
Box 6.3: Vehicular Pollution Management Measures ...............................................................57
Box 6.4: Performance Management System for TMAs....................................................................59
Box 6.5: Performance Management System for TMAs....................................................................59
Box 6.6: The Urban Unit – Analytical Studies to Support the Urban Development of
Punjab .........................................................................................................................60
Box 8.1: Assessing the PESRP..................................................................................................83
Box 8.2: The State Bank’s Evaluation of PESRP......................................................................84
Box 9.1: Innovative Healthcare Models in Punjab ...................................................................99
Box 9.2: Punjab Emergency and Ambulance Services—Rescue 1122: A Success Story.........99
Box 11.1: Establish Property Rights..........................................................................................113
Box 11.2 Improving Land Records Service Delivery ..............................................................117
Box 12.1: Development Policy Loan (DPL) Key Development Outcomes and
Monitorable Indicators..............................................................................................135
Box 13.1: NFC Award 2006—Distribution of Revenue and Grants-in-Aid ............................156
Box 13.2: Punjab Resource Management Program...................................................................157

x
Study Team
Ms. Safiya Aftab Innovative Development Strategies
Dr. Shujat Ali, Chief Economist, P&D Department,
Government of Punjab
Mr. Waqar Akram, University of Sargodha
Mr. Khawar Ata Research Economist, Punjab Economic
Research Institute
Mr. Masood Awan, Assistant Professor, University of Sargodha
Mr. Mubashir Ijaz, Innovative Development Strategies
Mr. M. Afsar Khan, Innovative Development Strategies
Dr. Muhammad Jameel Khan, Former Director, Punjab Economic Research
Institute
Professor Dr. Sohail Jehangir Malik, Team Leader,University of Sargodha and
Innovative Development Strategies
Dr. Muhammad Abdul Quddus Malik, Acting Director, Punjab Economic Research
Institute
Ms. Hina Nazli, Innovative Development Strategies
Mr. Habib ur Rehman Senior Chief, P & DD
Dr. Mohammad Khan Niazi, Innovative Development Strategies
Dr. Sarfraz Khan Qureshi, Innovative Development Strategies
Mr. Shakeel Ramay, Innovative Development Strategies
Professor Zakir Hussain Rana University of Sargodha
Mr. Mohsin Raza, Innovative Development Strategies
Ms. Ayesha Razzaq, Innovative Development Strategies
Professor Dr. Khalid Riaz, University of Sargodha
Note: Names are in alphabetic order.

xi
Acronyms and Abbreviations
AARI Ayub Agricultural Research Institute
ADB Asian Development Bank
ADBP Agricultural Development Bank of Pakistan
ADP Annual Development Program
AKFED Agha Khan Fund for Economic Development
AKRSP Agha Khan Rural Support Program
AMRI Agricultural Machinery Research Institute
APCA All Pakistan Contractors Association
APCom Agricultural Prices Commission
APTMA All Pakistan Textile Mills Association
AWBs Area Water Boards
BHU Basic Health Unit
BOD Biochemical Oxygen Demand
BOS Bureau of Statistics
BRDP Bahawalpur Rural Development Project
BVDP Barani Village Development Project
CAS Country Assistance Strategies
CBOs Community-Based Organizations
CBR Central Board of Revenue
CCA Culturable Command Area
CDGs City District Governments
CED Credit Enterprise Development
CFTD Cotton Fiber Textile Development [a French Public-Private Sector Company]
CMI Census of Manufacturing Industries
CPI Community and Physical Infrastructure
CV Coefficient of Variation
CWR Crop Water Requirement
DCO District Coordination Officer
DDO Deputy District Officer
DHA Defence Housing Authority
DHQ District Headquarters
DLR Directorate of Land Reclamation
DO District Officer
DO Dissolved Oxygen
DoH Department of Health
EDO Executive District Officer
SEIA Statements and Environmental Impact Assessment
EMIS Educational Management Information System
EOBI Employees Old Age Benefit Institution
EPA Environmental Protection Agency
EPD Environment Protection Department
EPI Expanded Program of Immunization
ESSI Employees Social Security Institutions
EU European Union
FAO Food and Agriculture Organization
FBC Federal Bank for Cooperatives
FBS Federal Bureau of Statistics
FFC Fauji Fertilizer Company
FFS Farmers Field School
FO Farmers’ Organization
FP Family Planning
FWB First Women’s Bank
GDI Gender Development Index
GDP Gross Domestic Product

GER Gross Enrolment Ratio
GIS Geographic Information System
GMS Genetically Modified System
GRAP Gender Reform Action Plan
HDR Human Development Report
HID Human and Institutional Development
HIES Household Income and Expenditure Survey
HIET High Irrigation Efficiency Technologies
HIV/AIDS Human Immunodeficiency Virus/Acquired Immune Deficiency Syndrome
IEE Initial Environmental Examination
IK Idara-e-Kissan
IMR Infant Mortality Rate
IPM Integrated Pest Management
IT Information Technology
IWRM Integrated Water Resources Management
JMP Joint Monitoring Program
KB Khushali Bank
KPF Khushal Pakistan Fund
KPP Khushab Pakistan Program
KPs Khal Panchayats
L/Cs Letter of Credits
LG&RDD Local Government and Rural Development Department
LGO Local Government Ordinance
LGs Local Governments
LSMI Large Scale Manufacturing Industries
m.ha Million hectares
MAF Million Acre Feet
MCOs Mobile Credit Officers
MDGs Millennium Development Goals
MF Micro Finance
MFIs Micro Finance Institutions
MICS Multiple Indicators Cluster Survey
MIS Management Information System
MLR Martial Law Regulation
MMT Million Metric Tonnes
MPDD Management Profession Development Department
MTBF Medium Term Budgetary Framework
NCBs The Nationalized Commercial Banks
NEQS National Environmental Quality Standards
NGOs Non-Government Organizations
NIAB Nuclear Institute for Agriculture and Biology
NIPA National Institute of Public Administration
NPK Nitrogen, Phosphorus and Potassium
NPs Nehri Panchayats
NRSP National Rural Support Program
NWFP North-West Frontier Province
OFWM On-Farm Water Management
PERI Punjab Economic Research Institute
PBM Pakistan Bait-ul-Mal
PCGA Pakistan Cotton Ginners Association
PCP Pakistan Centre for Philanthropy
PDSSP Punjab Devolved Social Services Program
PESRP Punjab Education Sector Reform Program
PFC Provincial Finance Commission
PFIS Poverty Focused Investment Strategy
PG Provincial Government
PHED Public Health Engineering Department
PIADSP Punjab Irrigated Agriculture Development Sector Project
xii

xiii
PIHS Pakistan Integrated Household Survey
PISC Punjab Small Industries Corporation
PMDFC Punjab Municipal Development Fund Company
PMSIP Punjab Municipal Services Improvement Project
PPM Parts per Million
PRMP Punjab Resource Management Program
PRSP Provincial Rural Support Program
PRSP Poverty Reduction Strategy Paper
PSC Punjab Seed Corporation
PSLM Pakistan Social and Living Standard Measurement Survey
PTV Pakistan Television Authority
RHC Rural Health Centre
RICS Rural Investment Climate Survey
RSP Rural Support Program
RTA Regional Transport Authority
SAP Social Action Program
SCARP Salinity Control and Reclamation Project
SCs Schools Councils
SDP Sector Development Program
SHMI Small and Household Manufacturing Industries
SME Small and Medium Enterprises
SMEDA Small and Medium Enterprise Development Authority
SMO SCARP Monitoring Organization
SSP Single Super Phosphate
T&V Training and Visit
TB Tuberculosis
TDN Total Digestible Nutrients
TEVTA Technical Education and Vocational Training Authority
THQ Tehsil Headquarter
TMA Tehsil Municipal Administration
UC Union Council
UHT Ultra High Temperature
UNDP United Nations Development Program
UNICEF United Nations Children’s Fund
UNIDO United Nations Industrial Development Organization
WAPDA Water and Power Development Authority
WASA Water and Sanitation Authority
WHO World Health Organization
WRM Water Resource Management
WSS Water Supply and Sanitation
WTO World Trade Organization
WWF Workers Welfare Fund
ZTBL Zarai Tarraqiati Bank Ltd.

vii
Statement
by
Mr. Suleman Ghani, Chairman Planning and Development Board
The province of Punjab has made significant progress in terms of income growth and
improvement in the access of the people to key social services in recent years. The last
Punjab Economic Report 2005 presented the analytical and policy underpinnings of Punjab’s
development strategy. The current report documents the progress made in the recent past in
the pursuit of the two basic objectives of our reform agenda; namely, improving the incomes
of the people and strengthening the delivery of public services.
We are well on the way to achieving the “Vision 2020” described by the Chief Minister in his
pre-budget policy speech on June 15, 2004. Our vision is based on the relentless pursuit of
modernization, innovation, confidence and tolerance. It sees Punjab in the year 2020 as a
fully literate, fully employed, highly educated, skilled, talented, tolerant, culturally
sophisticated, internationally connected, and reasonably well-off healthy society. The main
elements of this vision include an excellent educational system, thriving and competitive
markets, strong internationally competitive companies, world class infrastructure with
modern urban centres, a high value-added agriculture sector and a smart, small and efficient
government.
To achieve this vision, we have set ourselves very high targets. In order to achieve the target
of a GNP per capita of over $2000 by the year 2020 our GDP will have to double every eight
years or so. This implies a sustained GDP growth of 7 to 8 percent a year.
We are pursuing our strategy with a keen focus on results. Our ultimate objective is
improvement in the welfare of the people of Punjab. As this report documents there is
considerable evidence that the economic growth in the province is translating into improved
welfare of the people. While data to compute the money-metric measures of poverty are not
available for the current year all the non money-metric measures indicate significant progress
in the right direction.
Our comprehensive development framework based on a set of broad based long term
strategies covering the urban and rural areas, agriculture and industry, human development,
physical infrastructure and cluster development is being implemented through a medium term
strategic focus aimed at providing a facilitating and enabling environment to the private
sector for unleashing the potential of the four main growth pillars of our economy –
agriculture, manufacturing, minerals and natural resources and the services sector.

This strategy is bearing fruit. Our performance has been quite satisfactory – and we are on
track to double our GDP every seven to eight years and achieve our target of a GNP per
capita of over $2000 by the year 2020.
We realize that growth alone is not enough for effective poverty reduction and have
continued to accelerate our efforts to provide more and better education, health and social
services to the people. There has been an unprecedented increase in school enrolments
especially at the primary level and most importantly in the enrolment of girls. This is the
result of an intensive campaign to get children to school. We have now entered into the
second generation of reforms that focus on the quality of service delivery. Our policies,
therefore, aim not only to increase school enrolments but also to improve the quality of
schooling. Similarly access to health and population services has shown remarkable
improvements and significant qualitative improvements are afoot. Our efforts at improving
social welfare services are also beginning to show results.
These improvements in the performance of the economy and the social sectors are part of a
trend over the past few years that is fast gaining momentum. While we rejoice in our
achievements we continue to keep a watchful eye on the implementation of the policy
framework. This report is part of our efforts to do so. While the report documents the
successes in our efforts it also identifies the areas that require attention. The process of
producing this report has involved an extensive review and appraisal process with each of the
line departments. It is my hope that the report will become an annual feature.
I am extremely pleased that this report is completely home grown. It has involved extensive
interaction with and input from the line departments. I compliment the Chief Economist and
the team for putting together a useful document.
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ix
Preface
by
Dr. Shujat Ali, Chief Economist, Government of Punjab
The economy of the Punjab is in the process of structural transformation from its traditional
reliance on the agriculture sector to an increasing emphasis on manufacturing and the services
sectors. This transformation highlights the opportunities as well as the challenges for achieving
the twin objectives of increased incomes and improved social services.
The Government of Punjab is pursuing a results-based strategic thrust with an emphasis on
creating at least a million new jobs each year and sustaining a GDP growth rate in excess of 7
percent. This holistic framework is based on seven separate but mutually re-enforcing strategies
designed to achieve the “Vision 2020”. These strategies cover the main urban, rural and human
development sectors and are supported by strategies for physical infrastructure, regulatory
framework, public finance and cluster development which together determine the overall
enabling environment.
This report represents the efforts of the Planning and Development Department (P&DD) to
sharpen the focus on results. It is an effort to document the progress made during the year by
highlighting achievements and identifying areas for future consideration. The current report is
different in many ways from the one produced in 2005. That report represented a stock of
knowledge in terms of the analytical underpinnings of our strategic framework. The current
report takes that as a starting point and documents the results achieved so far and highlights the
initiatives undertaken and those planned for the future. As such it represents a flow of knowledge
about the economy of Punjab over the recent past. Punjab Economic Report 2005 was produced
by a consortium of our donor partners with the assistance of the Government of Punjab. This
year’s report is totally home grown. It was produced within the Planning and Development
Department at the Punjab Economic Research Institute with the assistance of the Bureau of
Statistics and a team of Pakistani consultants.
The process of producing this report is part of the efforts to build internal capacity for effective
monitoring and evaluation of the development process in the province. In this process we have
attempted to strengthen the feedback linkages with the line departments and provide a forum for
internal debate and discussion. It has helped to identify data limitations and areas that require
further attention. These will be strengthened over time. It is our hope that this report will become
an annual feature and one of the flagship activities of the Planning and Development Department,
around which we will focus our review activities.
I want to put on record my thanks to the whole team for putting together this report. In
particular I would like to mention the support I received from Dr. Muhammad Abdul Quddus
and Dr. Muhammad Jameel Khan (current and former Directors) and their team at the Punjab

Preface
Economic Research Institute, Mr. Muhammad Ramzan, Director General, Bureau of
Statistics and his team and Mr. Habib Ur Rahman, Senior Chief, P&DD and the other staff
members of the P&DD who participated wholeheartedly in this effort. I would like to thank
the team of consultants from Innovative Development Strategies (Pvt.) Ltd, led by Professor
Dr. Sohail Jehangir Malik of the Higher Education Commission of Pakistan at the University
of Sargodha for assistance in putting this report together. I would like to put on record our
debt to the Report Steering Committee and in particular to Mr. Inaamul Haque, Mian Tayyab
Hassan and Mr. Tariq Sultan for letting us benefit from their wisdom and guiding us so ably
through this process.
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xi
Executive Summary
Introduction
This second Punjab Economic Report (PER) 2007 follows the pattern of the first PER published in
March 2005. PER II aims to document the progress made in 12 key areas during the two years
following the publication of PER I. The choice of sectors was based on the areas identified in the first
report and the dominant policy framework in Punjab. Punjab’s policy framework is encapsulated in
the Chief Minister’s Vision 2020, which highlights a comprehensive set of strategies to achieve
socioeconomic development in the province. Presented in June 2004, Vision 2020 sees Punjab as “a
fully literate, fully employed, highly educated, skilled, talented, tolerant, culturally sophisticated,
internationally connected, and reasonably well off healthy society by 2020.” PER II aims to document
the progress made so far and identify the challenges to the growth and development required to
achieve this vision and the measures to overcome these.
Structure of the Report
PER II maps Punjab’s macro-growth trends and the resulting improvements in welfare, and presents
an analysis of the employment situation with a review of safety net measures that ensure that those
who cannot participate in the process of growth are accounted for. It then considers the province’s
structural transformation away from agriculture and toward industry and services, presenting a
discussion of the agriculture sector and rural development, followed by industry and urban
development. The report then analyzes the progress made by key social sectors, including education,
health and population, given that human development with a particular focus on gender continues to
be a key pillar of Punjab’s vision 2020. Discussions on Punjab’s land and water resources follow,
forming the main thematic thrust of the report given that they are crucial resources for unlocking the
full potential of the provincial economy. Finally, the report focuses on the financing needs necessary
for the growth and poverty reduction in Punjab.
The Economy’s Performance: Growth, Poverty, and Employment
In Fiscal Year 2007 Punjab’s gross provincial product (GPP) grew at 7.8% over the previous year. In
absolute terms it amounted to Rs. 3,067,033 million 58% of the national gross domestic product
(GDP).
The services sector is by far the largest sector, contributing about 54% to gross provincial product.
Agriculture accounts for 20.3% and industry 25.7%. Changes in the sectoral breakup of GPP over the
years are indicative of structural changes away from a reliance on agriculture. The data indicate that
the share of agriculture has declined considerably, from 31 to 20.3% between FY-1991 and FY-2007,
while that of manufacturing and services has increased.
The structural changes that are taking place in Punjab’s rural economy over time have important
implications, particularly for employment. About 44 % of Punjab’s labor force is employed in the
agricultural sector. It is also the only sector other than construction where the labor force absorption
rate (as measured by the percentage of total labor employed in that sector) is higher than its share in
the provincial economy. While the impressive growth of the services sector serves to boost GPP,
growth in agriculture has a far more wide-ranging effect on incomes, employment, and incidence of
poverty in the province.
The Punjab Government has estimated the decline in poverty headcount to have been about 11.52%
between FY 2002 and FY 2005. Non-income-based poverty measures, such as the enrolment rate,

Executive Summary
literacy level, access to safe water and health services, etc., have also improved over time as
documented by several surveys. The Bureau of Statistics estimates that the Province is poised to meet
nearly all the Millennium Development Goals well before the 2015 target. This progress results from
the growth in incomes as well as the Governments efforts to provide social and welfare services to the
masses.
Agriculture
Agriculture is the mainstay of Punjab’s economy, with a 20.3% share in the GPP. Major crops
contributed about 46.5% of value-added to agriculture in Punjab in FY 2007, while livestock
contributed a further 39.1 %.
The Government of Punjab is taking several initiatives to optimize agricultural resource use
(particularly of fertilizer), improve seed quality and promote farm mechanization, plant protection,
and access to agricultural credit. Other potential areas to increase agriculture productivity and
production include promotion of nontraditional agricultural products (e.g. off-season vegetables), and
livestock, and the expansion of effective research and extension.
Rural Development
For agricultural growth linkages to be strengthened and have the greatest possible impact on rural
poverty it is important to have a thriving and vibrant non-farm sector. Effective rural development not
only facilitates this growth of incomes but the provision of publicly provided goods and services to
the rural sector also add to rural welfare. The provision of public goods—electricity, public utilities,
and farm-to-market roads—is an essential part of rural development. In Punjab, the number of
electrified villages has grown by 11% per year from FY 1996 to FY 2006. About 91% of villages in
Punjab already have electricity and the rural electrification program continues to be executed on a
priority basis.
These developments are particularly conducive to the promotion of agro-based and cottage industries.
The network of farm-to-market roads has grown at a fast 9.5% per year after FY 2002, strengthening
the link between rural areas and urban centers.
Land ownership along with education and employment opportunities in the formal sector have been
found to be important correlates of household wellbeing; although their effects vary with region and
kinship group. Kinship group identity is an important determinant of relative well being. The
Government has also, indirectly, been an important driver of pro-poor change. The initiatives and
announcements from the Government have served to rally the efforts of the rural people leading to
significant changes. Fuller understanding of the dynamics of rural poverty reduction is increasingly
forming the basis of the Government’s policies in this area.
Several special programs to develop the province’s less developed areas have been started by the
Government of Punjab with the objective of reducing regional disparities and alleviating poverty.
Particular attention is being focused on barani (rain-fed) regions of Potohar , Cholistan, and Dera
Ghazi Khan. Individual landholdings in these regions are small, agricultural techniques primitive, and
there is an acute water shortage. New initiatives include drought management efforts, the Barani
Village Development Project, Sustainable Livelihoods in Barani Areas Project, Bahawalpur Rural
Development Project, and Dera Ghazi Khan Rural Development Project. These initiatives aim to
achieve rural development through income-generating employment activities, improvements in
regional infrastructure, and provision of financial support for skills development through participatory
organizations.
xii

Industry
Punjab has played a significant role in the industrial development of Pakistan, accounting for almost
60% the country’s industrial production in FY 2007. Punjab’s manufacturing sector makes a
significant contribution to national exports. The industrial sector’s share in GPP was 25.7 percent in
FY 2007, compared to roughly 17 percent in FY 2000. The large and small scale manufacturing sub-sectors
accounted for 14.14 and 5.27 percent of provincial GPP respectively in FY 2007 (Value-added
from the slaughtering industry which is now classified as an industrial activities make up the rest).
Increase in industrial output is associated with significant potential increase in employment. Estimates
made in 2005 indicate that 97% of the manufacturing units have less than 10 employees. As these
units grow in size and number the additions to employment generation will lead to commensurate
poverty alleviation.
Rural industrialization offers a good opportunity for controlling rural-urban migration.
The Government of Punjab’s Vision 2020 envisages promoting the development of industrial clusters
through public-private partnerships and by improving the business climate for firms. The department
of industries has taken a number of initiatives to promote industrial development, including
liberalizing its location policy, and establishing industrial estates and export processing zones, and an
expo center in Lahore.
The share of the services sector now exceeds that of all the commodity-producing sectors combined.
The wholesale and retail trade sub-sector is the most important in Punjab in terms of its large share,
followed by transport, storage and communications, and social, community, and personal services.
The services sector has great potential for employment generation and poverty reduction due to its
strong forward and backward linkages.
Urban Development
Punjab is urbanizing faster than any other province in the country: its level of urbanization has
increased from 17.4% in 1951 to 31.36% in 2006. In 2006, of its total population of 87.5 million,
urban Punjab had a population of 28 million. The Government of Punjab has, therefore, put urban
development at the forefront of its strategy. Its urban planning and implementation is backed by a
series of research studies that cover nearly every conceivable aspect of urban development. These
cover the areas of water supply, sanitation, sewerage, urban waster management, land management
issues including land titling and records, urban immovable property taxation, traffic planning,
transportation and environmental issues to name a few. Special programs are being developed for the
five large cities of Punjab which together account for over fifty percent of its urban population and
given their large size have specific issues. The Government of Punjab in close consultation with the
city district governments (CDGs) and tehsil municipal administrations (TMAs) has evolved and is in
the process of evolving holistic strategies to address the urban development issues.
Education
The Government of Punjab has taken the development of education to be its key challenge; and, the
slogan of ‘”parha likha Punjab” exemplifies its vision.
Gross enrolment rates at primary, middle, and matriculation levels have increased over time for both
males and females, although a large rural-urban gap persists. Total expenditure on education as a
percentage of Punjab’s GPP has increased steadily after FY 2004, especially following the initiation
of the Punjab Education Sector Reform Program (PESRP). Allocation to education is expected to
treble from Rs. 9,200 million in FY 2006 to Rs. 21,480 million in FY 2009. Under the Chief
Minister’s accelerated program for education, several key initiatives have been taken, including the
xiii

Executive Summary
improvement of physical infrastructure in seven universities, provision of IT equipment to schools, a
science education project, provision of libraries in schools, and the establishment of child-friendly
schools, among others.
Technical and vocational education had been a neglected sub-sector in Punjab in the past, with little
effort to prepare curricula and devise a system of examination for such education in keeping with
modern trends. Courses offered depended on the skills of available instructors. There were no uniform
criteria to evaluate graduates, and thus no standardized examinations. Curricula did not match the
demands of the market place; resulting in surplus skilled manpower in some trades and shortages in
others. Teacher training had not been paid much attention either. To deal with issues in this important
educational sub-sector, the Government of Punjab has established the Technical Education and
Vocational Training Authority (TEVTA).
With the increasing focus on higher education the number of private universities in Punjab has grown
at an average annual rate of 12.8% since FY 1996.
Health and Population
Punjab is the most populated province of Pakistan, with 87.5 million people as of 2006. At its current
growth rate of 2.64%, Punjab’s population will double by the year 2026. Dependency and
vulnerability rates are quite high with 47% of the population classifiable as dependant. Actual
dependency is much higher due to the low participation of women in economic activities. About 69%
of the population—comprising women, children, and the aged—can be classified as vulnerable.
Basic Health, Child Health, and Reproductive Healthcare
Immunization coverage of children in Punjab increased from 39% in FY 1999 to 58% in FY 2005
when measured on the basis of records. This is reflected in the decline in the Infant Mortality Rate
(IMR), particularly in the rural areas, from 123 to 82 deaths per 1,000 live births - although significant
variations exist across districts depending on the level of development.
A significant proportion of children in Punjab (aged under 5) are underweight, reflecting poor overall
health and well being and child health and nutrition continues to be a major concern of the
Governments health policy.
Improvement in maternal health is one of the Millennium Development Goals. About 71% of births in
Pakistan take place at home; most commonly with the assistance of trained dais, traditional birth
attendants, or family members resulting in high maternal mortality rates (MMR). The Government has
focused its attention on decreasing the MMR by increasing ante and post natal care.
Health Infrastructure and Expenditure
Punjab has the largest health infrastructure in Pakistan but medical facilities in small towns and union
councils, i.e., rural health centers (RHCs) and basic health units (BHUs) continue to require attention.
The major constraints relate to management issues due to geographic dispersion, the shortage of
qualified personnel, non-availability of diagnostic equipment and medical supplies, and inadequate
funding. A Health Sector Reform Program is now being implemented in the province to intervene
with greater financial allocations and other policy measures to overcome these inadequacies.
Gender in Development
Despite some progress significant gender disparities exist in the province, with women comprising
less than 5% of public sector employees. The representation of women at the decision-making level
stands at a negligible 3%. Female labor force participation at around 38–39% is low, even after
xiv

including those who produce goods or services at home. The female underemployment rate has
persistently remained four times as high as that of male underemployment.
The Government’s major initiatives in this area include the Gender Reform Action Plan (GRAP),
which is designed to trigger actions that will result in gender mainstreaming in provincial
departments. GRAP focuses primarily on institutional change to achieve gender equity, and its reform
agenda includes policy review and reform, gender responsive budgeting with allocation of an order
code for “women’s development” in the federal and provincial budgets, and collection of gender-disaggregated
xv
data
Land
Between FY 1991 and FY 2006, Punjab’s cultivated area increased from 11,819,000 ha to 12,510,000
ha due to improved water supply. However, per capita availability of cultivated land fell due to the
rising population. Land ownership in Pakistan is highly skewed and inequality is increasing. For
farms larger than 50 acres, the share in land owned increased from 16% in 1990 to 21% in 2000
according to the Agricultural Census of Pakistan.
There is also an increasing preponderance of small holdings; and the average size of small holdings
has fallen drastically. This has important implication for poverty alleviation for the majority of the
small holders since the landholding is too small to provide adequate collateral to access finance for
utilizing modern inputs for agricultural growth.
The Government of Punjab is focused on instituting reform of the system of land records and titling.
A comprehensive policy on regulating land use in rural areas would help to address the misuse of
productive agricultural land. Conversion of private agricultural land for other uses, i.e., commercial,
industrial, or residential takes place without any check. Enforcement of contracts can be improved by
on-the-spot inspections, reducing the number of tiers in the system, and barring the jurisdiction of
civil courts in revenue matters are all steps that would improve the bottlenecks associated with land
markets.
A special land survey to confer conclusive titles to land for different landowners will help to
strengthen the land records and land titling efforts of the Government. The present records-of-rights
need to be updated after the due process of extensive consultation with all stakeholders. It would also
be helpful to integrate land sales and land mutation processes in one administrative wing so that the
work of both is facilitated. Following this, land records need to be computerized. The overriding
objective of accurate land records is to promote greater efficiency through faster information retrieval,
transparency, and reduction of transaction costs for landowners.
Water
Punjab, like the rest of Pakistan, is a water-scarce area both with reference to irrigation needs and
drinking water and sanitation needs in rural and urban areas. Water conservation and management
is crucial to ensure continued, adequate water supplies. A water conservation strategy for the
province will require the use of innovative technology as well as institutional reforms to achieve
the desired results, but the Government of Punjab has already taken some important steps in this
direction and plans to do far more.
Judicious use of the country’s scarce water resources is crucial to ensure food security and maintain
growth in the economy. Two demand scenarios are explored. Under the high-demand scenario,
meeting production targets would require the cropped area to increase to 30.88 million hectares (Mha)
by 2010 and to 31.83 Mha by 2025. Compared with a cropped area of 22.7 Mha in 2000, this
represents a large increase that will require the addition of new areas and large investments in
irrigation and drainage works. The low-demand scenario implies that cropped area needs to increase

Executive Summary
to 26.1 Mha by 2010 and to 26.26 Mha by 2025. The targets of the low-demand scenario are largely
achievable through the intensification of existing cropped area without significantly expanding into
new areas.
The high-demand scenario envisages improvements in irrigation efficiency by 45 percent by 2010 and by
50 percent by 2025. Assuming that the aforementioned gains in irrigation efficiency can be realized, canal
water diversion requirements would be 170.44 million acre feet (MAF) in FY 2011 and 155 MAF in FY
2025. The lower figure for FY 2025 is the consequence of expected water savings due to higher irrigation
efficiency. In the absence of additional storage, the mean annual surface water availability would remain at
103.81 MAF, translating into a shortfall of 39 percent by FY 2011 and 33 percent by FY 2025. The
requirements of the domestic and industrial sectors would be in addition to the agricultural water demands
mentioned above. Urban domestic and industrial water use was 4.3 MAF in 2002 and is projected to
increase to 7.1 MAF by 2011 and to 12.1 MAF by 2025.1 Rural domestic water use was 0.8 MAF in 2002
and is expected to increase to 1.86 MAF by 2011 and to 3.2 MAF by 2025.
The Punjab water sector’s mission statement is to “provide adequate and reliable irrigation supplies to
culturable lands of Punjab aiming at enhanced agricultural productivity, sustainable development with
focus on holistic management, and broad-based institutional reforms.’’ The Framework of Action to
implement this mission is supported by the medium-term investment framework for the period FY
2008 to FY 2010. The Government of Punjab is in the process of implementing a comprehensive package
of reforms under the Punjab Irrigation Sector Reform Program (PISRP). The reforms, supported through a
series of Development Policy Loans (DPL) from the World Bank, focus on participatory management, and
aim at improving service delivery and sustainability of irrigation infrastructure through effective
participation of farmers at all levels of irrigation management.
Built on four reform pillars covering institutional policy, water management, irrigation service delivery and
on farm water management the major initiatives under DPL are:2
„ Preparation of a 5-10 year Asset Management Plan
„ Realistic O&M funding on the basis of updated yardsticks
„ An effective O&M performance evaluation system for greater transparency and accountability
„ Evolving a framework for O&M cost sharing
„ Establishment of 2 AWBs and 100 FOs during each of the next two years.
„ Developing a comprehensive system for monitoring and evaluation of canal allocations and canal
xvi
operations. Greater transparency and accountability through display of canal flow data on the website
Public Sector Resource Management
The Government of Punjab has significantly increased spending on the social sectors. To maintain
social sector expenditure at its desired level, the Government has instituted significant financial
management reforms for expanding the budgetary fiscal space to shoulder the expenditure
requirements of these sectors. This chapter looks at fiscal issues covered in the previous PER, and
assesses progress on fiscal and financial management in the two years since that report.
Fiscal Issues Covered in PER 2005
The first PER contained a detailed analysis of the fiscal and financial issues facing the provincial
Government. In an attempt to realign budgetary processes to reflect its development policy priorities over
the medium term, the Government of Punjab moved toward preparing the budget according to a MTBF. It
has also pursued several avenues to increase the effectiveness of its expenditures. The flagship program in
this context was the devolution program under which more than 40% of provincial expenditures were
1 National Water Strategy. National Water sector Profile, Volume 5. Government of Pakistan. Ministry of
Water and Power. Chief Engineering Advisor/Chairman Federal Flood Commission. October 2002. p. 122.
2 Source: ‘Punjab Irrigation Sector Development Policy Loan’. Presentation made by the Secretary Irrigation
and Power Department, Government of Punjab, at Punjab Development Forum, May 5, 2006

transferred as single-line items to the districts. To ensure proper accounting, a new chart of accounts is
being implemented under the aegis of the Project to Improve Financial Reporting and Auditing (PIFRA).
During the last nine years, the total expenditures of the Government of Punjab averaged 5.6% of its GPP,
the bulk of which (4.3% of GPP) was for recurrent expenditure and the remaining (1.3% of GPP) for
development expenditure.
The Government of Punjab has increased efforts to mobilize its own revenues, focusing its efforts on
introducing agricultural income tax (AIT), rationalizing provincial taxes and improving tax compliance by
changing the rate structure of urban immovable property tax (UIPT) and stamp duties and tax
administration. Foreign borrowing has become an increasingly important source of financing for Punjab’s
development program in recent years.
Recent initiatives undertaken by the Government of Punjab to improve resource management include
focusing more on social sector expenditures, developing public-private partnerships, pursuing a debt
management strategy, and implementing governance reforms.
While the Government of Punjab has successfully implemented a number of reform initiatives, some
issues need further consideration. These include improvement of the monitoring of its fiscal risks and
greater public access to information and legislative oversight.
To achieve its ambitious development goals in terms of poverty reduction and accelerated growth, the
Government of Punjab needs to mobilize significantly higher resources for non-inflationary financing
of its development program. Possible options that the Government could exercise to create the
additional fiscal space it needs over the medium term to achieve its development objectives include:
placing continued emphasis on debt management, improving its expenditure efficiency, aligning
policies and outcomes, institutionalizing the MTBF process at lower levels of Government, reviewing
public-private partnerships, harmonizing aid programs, making budgets more comprehensive,
improving financial reporting systems, and promoting transparency. These form part of the Finance
Department’s recently completed Medium Term Budgetary Framework 2007/2010.
Epilogue
Punjab has made significant progress in all aspects of the economy since the broad based strategic
thrust identified in the Vision 2020 was announced by the Chief Minister in 2004. This report
catalogues the progress and identifies the challenges. While the Government continues to focus its
attention on the key areas of reform two inter-related and extremely important aspects need to be
further strengthened. Effective policy reform requires a sound monitoring and evaluation system. It is
important to know what works and what does not; and what can be replicated and up-scaled. And it is
crucial to have this information in real time to feed into policy refocusing for greater efficiency. Such
a system of monitoring and evaluation is built on sound data. A revitalized data collection system in
the province will greatly strengthen this M&E system.
xvii

1. Introduction
The first Punjab Economic Report (PER) was published in March 2005 to “provide an analytical and
policy underpinning Punjab’s development strategy.”5 The PER rested on five pillars: (i) improving
governance, (ii) reforming the fiscal and financial management system, (iii) creating a conducive
environment for private sector-led growth, (iv) improving public service delivery, and (v) addressing
the provincial economy’s vulnerability to shocks. In the two years since its publication, there have
been a number of developments in Punjab’s economy, development policy framework, and resource
management systems.
This report, referred to as PER II, documents progress in the key areas identified by the first PER, and
extends the scope of analysis to cover all productive sectors of the Punjab economy. In effect, PER II
identifies barriers to growth and development in 13 areas, including the commodity producing sectors,
human development-related areas, and issues in natural resource management; it also presents
recommendations to overcome these barriers in the short to medium term. In addition to the first PER,
PER II bases its choice of sectors for analysis and recommended growth strategies on the dominant
policy framework in Punjab, the main features of which are outlined as follows.
1.1. Vision 2020
Punjab’s premier development paradigm is encapsulated in the Chief Minister’s Vision 2020, which
was presented in June 2004 and highlights a comprehensive set of strategies for Punjab’s socio-economic
development. It projects Punjab as “a fully literate, fully employed, highly educated,
skilled, talented, tolerant, culturally sophisticated, internationally connected, and reasonably well off
healthy society by 2020 [sic].” It also sees Punjab as having “an excellent education system, thriving
and competitive markets, strong internationally competitive companies, world class infrastructure
with modern urban centers, a high value adding agriculture sector and a smart, small and efficient
Government by the year 2020 [sic].” Essentially, the Vision 2020 conceives an economy with a
significant presence of international investors and a per capita gross domestic product (GDP) in
excess of $2,000. This implies that the province will have to maintain a growth rate in per capita GDP
of over 8 percent a year.6 The Vision 2020 statement outlines the following strategies to achieve its
objectives:
• Three basic strategies covering urban, rural, and human development. This long-term vision is
expected to be achieved through a set of medium-term strategies for agriculture,
manufacturing, services, and minerals and natural resources—“the four main pillars” of
Punjab’s economy. The central emphasis on the social sectors in the strategic vision is
designed to ensure human development, increased productivity, and growth.
• Three enabling strategies covering physical infrastructure, provincial regulations, and
1
funding.
• A cluster development strategy that underpins the geographical aspects of the development
approach.
1.2. Structure of the Report
Following this introduction, a review of macro-growth trends in Punjab and the resulting
improvements in welfare is presented in Chapter 2. Since employment generation is the key
mechanism for achieving the twin goals of growth and equity, the second chapter also presents an
5 Government of the Punjab, World Bank, Asian Development Bank, and UK Department for International
Development. 2005. Punjab Economic Report—Towards a Medium Term Development Strategy. Report
No. 29373-PAK. The World Bank.
6 Based on the Chief Minister’s “Punjab’s Vision 2020: Pre-Budget Policy Address,” June 2004, and the
“Three Years Performance of the Government of Punjab.”

Introduction
analysis of the province’s employment situation. Economic growth and increased employment have to
be accompanied by a comprehensive system of safety nets to ensure that those who cannot participate
in the process of growth are accounted for. A review of the safety net measures in place is, therefore,
included in the appendices.
As the analysis in the report indicates, Punjab’s economy is undergoing a structural transformation,
with the share of agriculture declining and that of the manufacturing and services sectors increasing
over time. The latter sectors tend to be located in the urban areas, but while the issues associated with
growing urbanization are increasingly important, the majority of the population continues to live in
the rural areas. While the Local Government Ordinance 2001 has obliterated the legal distinction
between the rural and urban sectors, ground realities and the limited resources and infrastructure
require that they be treated separately. Therefore, the agriculture sector and rural development are
discussed in Chapters 3 and 4, respectively, while Chapters 5 and 6 are devoted to a discussion of
industry and urban development, respectively. The services sector accounts for the major share of
provincial GDP and is discussed in Chapter 7.
Human development, with a particular focus on gender, continues to be a key concern of the
Government of Punjab. Analysis of the progress made in the key social sectors of education, health,
and population is the subject of Chapters 8 and 9. Chapter 10 is devoted to a discussion of the
progress made in mainstreaming gender in the province.
The main thematic thrust of this report is land and water. These are discussed in Chapters 11 and 12,
respectively. Unleashing the full potential of the provincial economy to meet its strategic objectives
depends essentially on addressing the issues connected to these crucial natural resources. In particular,
the analysis of Punjab’s water sector presents a holistic picture of the situation and identifies critical
constraints and issues, as well as the interventions necessary to address them. Finally, Chapter 13 of
the report focuses on financing the needed growth and poverty reduction in Punjab.
This report represents a synthesis of data and analysis supplied primarily by functionaries of the
Government of Punjab.7 It is hoped that this report will become an established annual exercise, with
each edition representing progress made during the year, highlighting the issues and steps taken to
achieve that progress, and illuminating the road ahead.
7 While care has been exercised to cite sources where available, certain subsections of this report are
2
based directly on Government of Punjab documents supplied by various functionaries. Since this is a
Government of Punjab report, these contributions have not been explicitly acknowledged.

3
2. Assessing the Economy’s Performance: Growth, Poverty
and Employment
International experience suggests that significant poverty reduction is only possible when broad-based
growth is sustained over time, and is accompanied by efficient provision of good-quality social
services. Punjab’s Vision 2020 envisions doubling the Gross Provincial Product (GPP) every eight
years, and recognizes that such an outcome is inconceivable without substantial human resource
development. This chapter (i) examines growth and employment trends in the provincial economy, (ii)
reviews the functioning of social safety nets, and (iii) assesses the welfare and poverty status of the
population.
2.1. Punjab’s GPP
The first PER estimated Punjab’s GPP based on a national GDP apportioning methodology, which
was then used by the Bureau of Statistics (BOS) to generate GPP estimates for two subsequent fiscal
years, FY 2006 and FY 2007.8 Given the shortcomings of national and province-level data generation,
the resulting estimates are largely indicative, but provide a good idea of the direction the economy is
taking, the share of key sectors in the provincial economy, and the gradual structural transformations
that are taking place. The BOS estimates that Punjab’s GPP amounted to Rs. 2,844,290 million in
FY 2006 (in terms of constant factor cost of FY 2000)—almost 58 percent of the national GDP. The
GPP grew at a rate of 7.4 percent over the previous year. For FY 2007, GDP at constant factor cost
was estimated at Rs. 3,067,033 million, showing a growth rate of 7.8 percent.
2.1.1 Share in National Economy
Punjab is a significant contributor to national GDP, accounting for 58.5 percent of Pakistan’s national
income according to estimates of the Government of Punjab. In FY 2007, the province accounted for
62.6 percent of community and social services, 61.3 percent of wholesale and retail trade, 57 percent
of agriculture, and 58.2 percent of industrial value-added in the national GDP.9 Overall, Punjab
contributes more than 50 percent of the country’s GDP in almost every sector in the national accounts.
Figure 2.1 illustrates the percentage share of Punjab’s GPP in the national GDP by major sector, while
Figure 2.2 shows the share of key sub-sectors in the national economy in FY 2007.
8 The formulation FY2006 refers to the year beginning 1 July 2005 and ending 30 June 2006. Fiscal years
are referred to throughout this report using this formulation.
9 According to classifications used by the Government of Punjab, the industry sector includes
manufacturing (large and small scale as well as the slaughtering industry), mining and quarrying,
construction, and electricity, gas and water supply.

Assessing the Economy’s Performance: Growth, Poverty, and Employment
Figure 2.1: Sector Wise Share of Punjab’s GPP in National GDP
4
59.5
59.0
58.5
58.0
57.5
57.0
56.5
56.0
55.5
Agriculture Industry Services Overall
GDP
Sectors
Share in National GDP
Source: Bureau of Statistics, Punjab (2007).
Figure 2.2: Share of Key Sub-Sectors of Punjab’s GPP in National GDP
80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
Major Crops
Minor Crops
Livestock
Large-scale
Manufacturing
Construction
Transport,
Storage &
Communication.
Wholesale &
Retail Trade
Sub-sectors
Share in National GDP
2.1.2 Structure of GPP
In terms of relative contribution to GPP, the services sector is by far the largest sector of the
provincial economy, accounting for almost 54 percent. The commodity producing sectors—
agriculture and industry (mainly manufacturing)—together account for about 46 percent of GPP, with
agriculture accounting for 20.3 percent and industry for 25.7 percent, as shown in Figure 2.3.

5
Figure 2.3: Sectoral Shares in Punjab’s GPP, FY 2007
20.35%
25.70%
53.95%
Agriculture
Industry
Services
Source: Bureau of Statistics, Punjab, 2007.
Given the increasing importance of services in the provincial economy, a further breakdown of the
services sector is useful for analyzing key sources of growth. Figure 2.4 illustrates the breakdown of
the services sector in Punjab. Wholesale and retail trade constitutes by far the largest share,
accounting for about 37 percent of services. This is followed by transport and communications, which
accounts for 21.1 percent. Other services, including a wide range of community, social, and personal
services, and others not classified separately, constitute 19 percent of total services.
Figure 2.4: Composition of Punjab’s Services Sector, FY 2007
21%
9% 37%
9%
5%
19%
Transport,Storage &
Communications
Wholesale & Retail
Trade
Finance & Insurance
Ownership of
Dwellings
Public Admn. &
Defence
Other Services
Similar breakdowns can also be estimated for the commodity producing sectors. Within the
agriculture sector, major crops make up 46.5 percent, minor crops 13.4 percent, forestry 0.34 percent,

Assessing the Economy’s Performance: Growth, Poverty, and Employment
and fisheries 0.6 percent of output; livestock makes up the remaining 39.1 percent. Within the
industry sector, large-scale manufacturing accounts for about 55.03 percent and small-scale
manufacturing about 20.5 percent of total value-added. The slaughtering industry, which is now
officially designated part of the manufacturing sector, makes up 5.5 percent.
The sectoral breakdown of GPP is indicative of the structural changes in Punjab’s economy over the
years, with its reliance on agriculture being gradually replaced by the increasing importance of
services and, to a lesser extent, by manufacturing. This shift is particularly noticeable when trends in
sectoral value-added are analyzed over time. Government of Punjab data indicate that from FY 1991
to FY 2007, the share of agriculture has declined from 31 to 20.3 percent, while that of industry
(including what was earlier classified as “other production”) and services has increased from 20 to
25.7 percent, and from 49 to 53.9 percent, respectively.10 This shift has important implications for the
magnitude and direction of future growth and for employment generation, as explained in subsequent
sections.
2.1.3 Sectoral Growth Trends
Punjab’s economy has grown at a rate of 8.1 percent per annum since FY 2003 according to estimates
compiled by the BOS, buoyed by the exceptionally strong performance of manufacturing in FY 2004
and FY 2005. The provincial economy’s growth rate slowed down to 7.4 percent in FY 2006
compared with a growth rate of 9.35 percent11 in FY 2005, largely due to the poor performance of the
crop sector on which a significant proportion of the provincial economy depends.
In FY 2007, growth rose to 7.83 percent, mainly due to revival of the agriculture sector, particularly
major crops which posted growth rates of 8.5 percent, compared to a decline of almost 5 percent in
FY 2006. The services sector did not perform as well in FY 2007 as it did in FY 2006, however.
Wholesale and retail trade posted a growth rate of 9.3 percent, compared to 14 percent in FY 2006,
and the growth rate in the finance and insurance sector was just over 18 percent, compared to almost
33 percent in FY 2006. [Table 2.1].
Table 2.1: GDP Growth Rate in Punjab (% per annum)
SECTOR 2002/03 2003/04 2004/05 2005/06 2006/07
Commodity Producing Sector
1. Agriculture 7.06 0.88 10.37 0.43 6.27
2. Industrial sector 3.23 14.70 12.35 5.73 7.43
6
Mining and quarrying -23.69 2.45 5.04 6.38 11.66
Manufacturing 6.86 13.67 15.07 9.89 8.43
Construction 3.98 -10.75 18.56 5.66 17.23
3. Services sector 6.43 8.17 7.47 11.23 8.63
Transport, Storage &
communication
4.27 3.53 3.45 6.88 5.75
Wholesale/Retail Trade 9.97 15.49 9.43 14.00 9.32
Finance & Insurance -1.28 8.98 30.85 32.96 18.16
Ownership of Dwellings 3.50 3.50 3.50 3.50 3.50
Services 6.07 5.56 6.59 6.27 8,55
GDP 5.79 8.03 9.35 7.40 7.83
Source: Bureau of Statistics, Punjab.
Based on the Government of Punjab estimates per capita income at current factor cost in the Province,
expressed in US Dollar terms has risen from $ 601 in 2002/03 to $ 990 in 2006/07 - a 67% increase
in four years. This is a commendable achievement.
Figure 2.5 plots growth rates of key sectors of the Punjab economy, as well as the average annual
growth rate of GPP over the last four years. As the data shows, agricultural growth rates have been
10 These shares may also have changed because of the reclassification of some sub sectors. For example,
the slaughtering industry was recently designated as part of manufacturing rather than agriculture.
11 All growth rates are based on provincial and national GDP estimates constant factor cost of FY2000.

highly volatile over the period, while industrial growth rates have shown a downward trend, reviving
slightly only over the last year of our analysis. The growth in services has been the relatively constant
factor in the picture, and has served to keep overall GPP growth relatively stable.
Figure 2.5: Growth Rates of Key Sectors and the GPP in Punjab
7
16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
2003-04 2004-05 2005-06 2006-07
Years
Agriculture
Industry
Services
GPP
2.2. Employment12
The broad-based economic growth needed for poverty reduction requires that the poorer segments of
society be included in the growth process. Employment offers the most direct mechanism to ensure
this inclusion. According to the BOS estimates 3.5 million new jobs had been created in Punjab in the
three years preceding 2006; 60 percent of which were in the agricultural sector and 20 percent in
services.
2.2.1 Employment by Sector
Data from the recently released Labor Force Survey of Pakistan 2005/06 show that employment in the
province is largely concentrated in the agricultural sector, which employs 44 percent of the provincial
labor force. As is obvious from Figure 2.6, agriculture, construction, and personal services are the
three sectors of the provincial economy whose labor force absorption rate (measured by the
percentage of total labor employed in that sector) is higher than their share in the provincial economy.
Thus, while the impressive growth of the services sector serves to boost GPP, growth in agriculture
and, to a lesser extent, in construction, can have a far wider effect on incomes, employment, and
incidence of poverty in the province. Fluctuations in agricultural growth thus have serious
implications for social welfare in Punjab. This is discussed in more detail in the next section.
12 Unless stated otherwise, data quoted in this section are from the Labor Force Survey 2005/06, which is
the latest version of this publication.

Punjab Economic Report 2007

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Punjab Economic Report 2007